ON - Province offers property tax deferral programThe province provides a program under which low-income seniors and low-income persons with disabilities can obtain a partial deferral of property tax and education tax. The tax deferral applies to the...

ON - Interest Rates - 2018The province of Ontario charges and pays interest on underpayments and overpayments of tax at rates prescribed by statute and set at the beginning of each calendar quarter. The rates levied and paid f...

ON - Increases to driver licensing fees cancelledThe government of Ontario has announced that planned fee increases with respect to licensing fees for drivers in the province, which were to have taken effect on September 1, 2018, have been cancelled...

ON - 2018 personal income tax ratesAs announced in this year’s provincial Budget, Ontario has altered its personal tax rate structure. The changes announced include the elimination of the provincial surtax and the replacement of ...

ON - Interest Rates – 2018The province of Ontario charges and pays interest on underpayments and overpayments of tax at rates prescribed by statute and set at the beginning of each calendar quarter. The rates levied and paid f...

ON - Provincial R&D tax credit enhancedThe Ontario Research and Development Tax Credit (ORDTC) is a 3.5% non-refundable tax credit earned on eligible R&D expenditures. As announced in this year’s provincial Budget, elig...

ON - Interest Rates - 2018The province of Ontario charges and pays interest on underpayments and overpayments of tax at rates prescribed by statute and set at the beginning of each calendar quarter. The rates levied and paid f...

ON - Province announces date for 2018-19 BudgetThe provincial government has announced that Ontario’s 2018-19 Budget will be brought down by the Minister of Finance on Wednesday, March 28 at around 4 p.m.
Once the Budget is announced, the B...

ON - Interest Rates – 2018The province of Ontario charges and pays interest on underpayments and overpayments of tax at rates prescribed by statute and set at the beginning of each calendar quarter. The rates levied and paid f...

CRA announces enhancements to BizAppThe Canada Revenue Agency (CRA) provides a mobile web app for small business owners and sole proprietors which enables them to manage their business tax accounts on any browser-enabled mobile device.
...

Unemployment rate down slightly for SeptemberThe most recent release of Statistics Canada’s Labour Force Survey shows a small decline in unemployment during the month of September. That rate stood at 5.8%, down 0.1% from the rate posted fo...

Canada Pension Plan contribution rates for 2019The Canada Revenue Agency has announced the contribution rates and amounts for the Canada Pension Plan which will apply during the 2019 calendar year, and that announcement can be found at https://www...

Prescribed interest rate for leasing for NovemberThe Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of November.
The prescribed rate for that month will be 3.43%.
A...

Inflation rate at 2.2% for September The most recent release of Statistics Canada’s Consumer Price Index shows that the inflation rate for the month of September stood at 2.2%, as measured on a year-over-year basis. The comparable ...

Bank of Canada raises interest rates againIn its regularly scheduled interest rate announcement made on October 24, the Bank of Canada once again increased the bank rate, which now stands at 2%.In the press release announcing the increase, wh...

Slight decline in unemployment rate for SeptemberThe most recent release of Statistics Canada’s Labour Force Survey shows a small decrease in the overall unemployment rate for the month of September. That rate decreased from the 6% rate record...

Prescribed interest rate for leasing for OctoberThe Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of October.
The prescribed rate for that month will be 3.33%.
A ...

Inflation rate down slightly in AugustThe most recent release of Statistics Canada’s Consumer Price Index shows that the rate of inflation for the month of August 2018 stood at 2.8%, as measured on a year-over-year basis. The compar...

Employment insurance premium rate for 2019The Minister of Finance has announced that the employment insurance premium rate payable by employees and the self-employed for the 2019 tax year will be reduced.
The premium rate for that year will ...

Slight increase in unemployment rate for AugustThe most recent release of Statistics Canada’s Labour Force Survey shows a small increase in the unemployment rate posted for the month of August. That rate rose by 0.2%, from 5.8% to 6%.
Most ...

Bank of Canada leaves interest rates unchangedIn its scheduled interest rate announcement made on September 5, the Bank indicated that no change would be made to current interest rates. Accordingly, the Bank Rate remains at 1.75%.
The Bank ackno...

CRA issues Tax Tip on benefit review processEach year the Canada Revenue Agency (CRA) sends a letter and questionnaire to approximately 350,000 taxpayers, seeking to determine whether such taxpayers are receiving the correct tax credits and ben...

Upcoming tax instalment due date for individualsThe due date for the third instalment payment of 2018 income taxes by individuals falls on September 15, 2018. As that date is a Saturday, instalment payments will be considered to be made on time if ...

Rate of inflation at 3% for JulyThe most recent release of Statistics Canada’s Consumer Price Survey shows a significant increase in inflation for the month of July. That rate, as measured on a year-over-year basis, stood at 3...

Unemployment rate down slightly for JulyThe most recent release of Statistics Canada’s Labour Force Survey indicates that the overall rate of unemployment was down slightly for the month of July. That rate stood at 5.8%, down by 0.2% ...

CRA podcasts and webinars for small businessesThe Canada Revenue Agency (CRA) prepares and posts on its website a number of podcasts and webinars covering tax and tax-related issues of particular interest to small businesses.
There are currently...

CRA issues new direct deposit form for businessesThe Canada Revenue Agency (CRA) has updated and re-issued its Form RC366, which allows businesses to have amounts owed to them deposited directly to a bank account.
The updated form can be used to ei...

CRA issues updated guide to RESPsThe Canada Revenue Agency (CRA) has updated and re-issued its publication RC4092(E) on Registered Education Savings Plans.
The updated publication incorporates changes, originally announced as part o...

Inflation rate up by 2.5% in JuneThe most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of June, as measured on a year-over-year basis, stood at 2.5%. That cha...

Prescribed interest rates for leasing rulesThe Canada Revenue Agency (CRA) has announced the prescribed interest rates for leasing rules which will apply during the months of July and August 2018.
Those prescribed rates will be 3.28% for July...

Slight increase in unemployment rate for JuneWhile employment rose by 32,000 during the month of June, the unemployment rate was also up, by 0.2%, a result attributed by Statistics Canada an increase in the number of individuals seeking to enter...

Bank of Canada increases benchmark interest rateIn its regularly scheduled interest rate announcement made on July 11, the Bank of Canada indicated that it was increasing its benchmark interest rate by one-quarter of a percentage point. Accordingly...

CRA issues Tax Tip on return review processEach year, the Canada Revenue Agency reviews approximately 3 million returns which have already been filed and assessed. Generally, such reviews are carried out to confirm income amounts reported, and...

No change to inflation rate for MayThe most recent release of Statistics Canada’s Consumer Price Index indicates the rate of inflation for the month of May stood at 2.2%. The same rate was recorded for the month of April, and bot...

Prescribed interest rate for leasing for JulyThe Canada Revenue Agency (CRA) has announced the prescribed interest rate for leasing rules which will be in effect during the month of July.
The prescribed rate for that month will be 3.28%.
A cha...

CRA updates and re-issues Notice of Objection formThe Canada Revenue Agency has updated and re-issued its standard form for filing an objection to a Notice of Assessment or Reassessment. The 2018 T-400A E, Notice of Objection, can be found on the CRA...

No change in unemployment rate for MayThe most recent release of Statistics Canada’s Labour Force Survey shows little change in unemployment during the month of May. For the fourth consecutive month, that rate stood at 5.8%.
There ...

Inflation rate for April at 2.2%The most recent release of Statistics Canada’s Consumer Price Index shows that the overall rate of inflation for the month of April stood at 2.2%, as measured on a year-over-year basis. The rate...

Unemployment rate unchanged in AprilThe most recent release of Statistics Canada’s Labour Force Survey indicates that there was no change during the month of April to either employment figures or the overall unemployment rate.
Th...

CRA tax topic podcasts available for downloadThe Canada Revenue Agency prepares and posts podcasts on a number of different tax topics, both individual and corporate. Those podcasts are available for download from the CRA website.
The current s...

Prescribed interest rates for May and JuneThe Canada Revenue Agency has announced the prescribed interest rates for leasing rules which will be in effect during the months of May and June 2018.
Those prescribed rates will be 3.22% during the...

Getting information about your tax refundTaxpayers who have filed their return for the 2017 tax year and are expecting to receive a refund can track the status of that refund payment through a toll-free telephone line. That line, the CRA&rsq...

CRA issues warning on filing season tax scamsThe Canada Revenue Agency (CRA) has issued a warning to taxpayers of the need to be particularly vigilant with respect to fraudulent text, telephone, and e-mail communications, which increase during t...

Inflation rate for March reaches 2.3%The most recent release of Statistics Canada’s Consumer Price Index indicates that the rate of inflation stood at 2.3% during the month of March 2018, as measured on a year-over-year basis. The ...

Unemployment rate unchanged in MarchThe most recent release of Statistics Canada’s Labour Force Survey shows that the rate of unemployment for the month of March 2018 stood at 5.8%. The same rate was recorded for February 2018.
E...

Bank of Canada leaves interest rates unchangedIn its regularly scheduled interest rate announcement made on April 18, the Bank of Canada indicated that no change was required to current interest rates. Accordingly, the Bank Rate will remain at 1....

CRA issues warning on tax scamsWhile taxpayers fall victim to tax scams year-round, such scams are more prevalent during and just following tax filing season. During that time, taxpayers expect to hear from the tax authoritie...

CRA issues e-filers manual for 2017 returnsThe Canada Revenue Agency has issued its Guide RC4018, Electronic Filers Manual for 2017 Income Tax and Benefit Returns. That guide is for use by certified e-filers in filing individual income tax ret...

Unemployment rate down slightly in FebruaryThe most recent release of Statistics Canada’s Labour Force Survey shows a small decline in the overall unemployment rate for the month of February 2018. That rate declined from 5.9% in the mont...

Increase in Consumer Price Index for JanuaryThe most recent release of Statistics Canada’s Consumer Price Index indicates that the rate of inflation for the month of January 2018 stood at 1.7%. The rate for the previous month was 1.9%.
I...

Bank of Canada leaves interest rates unchangedIn its regularly scheduled interest rate announcement made on March 7, the Bank of Canada indicated that no change would be made to current interest rates. Accordingly, the bank rate remains at 1.5%.
...

Budget 2018 - CRA compliance ordersBudget 2018: Where a CRA compliance order or information requirement is contested, a new rule will “stop the clock” to prevent the tax year from being statute barred....

Extended hours for CRA telephone help lineThe Canada Revenue Agency (CRA) provides a 1-800 telephone service to provide tax information to Canadian taxpayers. Such information can be general in nature, or can involve the specific tax affairs ...

Unemployment rate up slightly in JanuaryThe most recent release of Statistics Canada’s Labor Force Survey shows a slight increase in the overall unemployment rate for the month of January. That rate rose by 0.1%, from 5.8% to 5.9%.
T...

2018-19 Federal Budget date announcedThe Federal Minister of Finance has announced that the 2018-19 federal Budget will be brought down on Tuesday, February 27, 2018.
The Budget will be released at around 4 p.m. and the full Budget Pape...

CRA reinstates telephone tax return filing serviceFor a number of years, taxpayers whose tax situation was relatively straightforward were able to file their return by telephone. That service, which was called TELEFILE, was withdrawn a few years ago....

Bank of Canada raises interest ratesAs widely expected, the Bank of Canada indicated, in its regularly scheduled interest rate announcement made on January 17, that an increase in the bank rate was required.
The Bank’s announceme...

Unemployment rate for December 2017 down to 5.7%The most recent release of Statistics Canada’s Labour Force Survey indicates that the unemployment rate for the month of December 2017 stood at 5.7%. The last period for which that rate was reco...

Automobile deduction and benefit limits for 2018Finance Canada has announced the limits and thresholds which will apply for purposes of determining automobile benefits and deductions during 2018.
Most such deduction limits and thresholds are uncha...

Changes to be made to Voluntary Disclosure ProgramThe Canada Revenue Agency (CRA) provides an administrative program under which taxpayers who have failed to file returns or pay taxes on a timely basis can bring their tax affairs into compliance, usu...

Bank of Canada leaves interest rates unchangedIn its regularly scheduled interest rate announcement made on December 6, the Bank of Canada indicated that, in its view, no change is required to current rates. Accordingly, the bank rate remains at ...

Unemployment rate down in NovemberThe most recent release of Statistic’s Canada’s Labour Force Survey shows a slight decline in the overall unemployment for the month of November. That rate declined by 0.4%, to 5.9%. The N...

T4127 for 2018 payroll deduction amounts releasedThe Canada Revenue Agency has issued the 2018 version of its publication T4127(E), Payroll Deductions Formulas. The guide is intended for use by payroll software providers and by employers which manag...

Inflation rate up by 1.4% in OctoberThe most recent release of Statistics Canada’s Consumer Price Index (CPI) shows an inflation rate of 1.4% for the month of October, as measured on a year-over-year basis. The equivalent rate for...

Finance launches pre-budget consultationsFinance Canada has begun the consultation process leading to the release of the 2018-19 federal Budget.
As part of that budget consultation process, the Minister of Finance is holding in-person publi...

Employment Insurance premium rates for 2018The federal government has announced the premium rates and maximum insurable earnings amount which will be in place for the 2018 calendar year.
The premium rate for the year for employees has been se...

Getting a post-secondary education – or professional training – isn’t inexpensive. Tuition costs can range from as little as $5,000 per year for undergraduate studies to as much as $40,000 in tuition for a year of professional education. And those costs don’t factor in necessary expenditures on textbooks and other ancillary costs, to say nothing of general living expenses, like rent, transportation and food.

Getting a post-secondary education – or professional training – isn’t inexpensive. Tuition costs can range from as little as $5,000 per year for undergraduate studies to as much as $40,000 in tuition for a year of professional education. And those costs don’t factor in necessary expenditures on textbooks and other ancillary costs, to say nothing of general living expenses, like rent, transportation and food.

What that means, in most cases, is that Canadians who want to pursue post-secondary education must go into debt to do so. Financing through a bank loan or line of credit is possible, but most students who need financial assistance receive that assistance through a federal government program – the Canada Student Loan (CSL) program – as well as loan or grant programs provided by the particular province or territory in which the student resides.

Using a government-sponsored loan program to finance education has a number of advantages. Under the CSL program, any loans provided do not accrue interest while the recipient student is still in school and no repayment of the loan is required during that time. However, interest starts accruing once the student has graduated and, six months after graduation, those who received loans under the CSL program are required to make arrangements for repayment. Consequently, CSL loan recipients who graduated in the spring of 2018 must now consider what arrangements they wish to make for repayment of loan amounts received.

The onus is on the loan recipient to contact the CSL center to make required arrangements for repayment, and failing to do so will not delay repayment. In such cases, the federal government, as the loan issuer, has the right to automatically withdraw loan repayments from the same bank account where the loans were originally deposited.

Loan recipients can choose between a fixed interest rate on their loan (meaning that the interest rate stays the same until the loan is fully repaid) or a variable/floating rate of interest, which will change with changes in the prime rate.

Current rules provide the following rates for Canada Student Loans issued on or after August 1, 1995:

the fixed interest rate is prime plus 5%;

the floating interest rate is prime plus 2.5%.

The choice of whether to select a fixed or floating interest rate is, obviously, an individual one, which must take into account the size of the loan, the time period over which the borrower expects to make full repayment and, of course, one’s views on whether interest rates will be rising or falling over that expected repayment period.

Whatever the interest rate chosen or levied, borrowers who pay that interest can claim a federal and provincial/territorial tax credit to help offset those costs. The student loan interest tax credit is a non-refundable credit, meaning that it applies to reduce any federal tax payable, but cannot create or increase a refund. That federal tax reduction is equal to 15% of the interest amount claimed (provincial and territorial amounts will differ by jurisdiction). Interest amounts eligible for the credit are those paid in the current tax year or any of the previous 5 tax years, without limit. And, finally, the student loan interest tax credit can be claimed only by the former student who received the government student loan.

These criteria require former students who are eligible for the credit to consider the following factors in deciding whether to claim the credit, and in what amount.

Individuals who do not have tax payable for the year will not benefit from claiming the student loan interest tax credit, as there is no tax which the credit can reduce.

Individuals who have other available tax credits which must be claimed in the year the related expense is incurred should claim those credits first, as the student loan tax credit can be carried forward and claimed in any of the five years after the interest has been paid.

Where the individual has remaining tax payable in the current year after all other available tax credits have been claimed, the student loan interest tax credit should be claimed only to the extent necessary to reduce tax payable to zero. Any additional claim should be carried forward to a future year or years where it is needed to reduce tax payable.

There is a very important caveat. Once a student has graduated (especially from a professional training program like law or medicine), financial institutions will frequently offer to loan that student sufficient funds to allow the consolidation of all outstanding debts which were incurred to finance his or her education. Often the interest rate to be provided is a preferential one, and can even be lower than the rate which the student borrower would pay under the CSL program.

That preferential interest rate, however, has a “cost” of which most graduates are unaware. The student loan interest tax credit is available only for interest paid on government sponsored student loans. Borrowers cannot claim interest paid on any other kind of loan, even where that loan was used for financing post-secondary education. As well, no credit can be claimed for interest paid on an otherwise qualifying student loan that has been combined with any other kind of loan. If the borrower has obtained a loan from a bank or other financial institution, or has consolidated such a loan with government student loans which would otherwise qualify for the credit, none of the interest paid on that loan or consolidated loan will qualify for the student loan interest tax credit.

Consequently, borrowers who are considering a loan offer from a financial institution must include in their calculations not only the difference in interest rates, but whether any lower interest rate offered by the financial institution will compensate for the loss of any claim for the student loan interest tax credit.

When things work out after graduation in the way everyone hopes they will, the former student will have secured employment at an income sufficient to make repayment of student borrowings possible. Where that’s not the case, and the borrower cannot make repayment as required because of financial hardship, it’s possible to reduce the required monthly repayment through the Repayment Assistance Program. Details of that Program, and much more information on the Canada Student Loan Program generally can be found on the federal government website at https://www.canada.ca/en/services/jobs/education/student-financial-aid/student-loan.html.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

When the Canada Pension Plan was launched in the mid-1960s, both the working lives and the retirements of Canadians looked a lot different than they do in 2018. Fifty years ago, most Canadians were able to work at a single full-time job, often held that job for most or all of their working lives and, in many cases, benefitted from an employer sponsored defined benefit pension plan which guaranteed a certain level of income in retirement.

When the Canada Pension Plan was launched in the mid-1960s, both the working lives and the retirements of Canadians looked a lot different than they do in 2018. Fifty years ago, most Canadians were able to work at a single full-time job, often held that job for most or all of their working lives and, in many cases, benefitted from an employer sponsored defined benefit pension plan which guaranteed a certain level of income in retirement.

None of those circumstances accurately describe the current reality for Canadians, either those who are approaching retirement or the younger generation seeking to find their place in the workforce. Defined benefit pension plans, at least in the private sector, simply aren’t part of workplace reality for most Canadian workers. In some cases, corporate bankruptcies have left those who did have such a pension with a reduced pension, or no pension at all. And, while some of those who are nearing retirement may have worked for a single employer for their entire working lives, there are many Canadians for whom corporate downsizing or outsourcing has meant the loss of a long-term position. And, when that happens, replacing that lost income has often meant working on contract or in short-term positions, usually for less compensation.

All of these factors have affected the ability of Canadians to accumulate private savings for retirement through registered pension plans (RPPs) and registered retirement savings plans (RRSPs) and, as a consequence, has increased the degree to which they must rely, in retirement, on government sponsored retirement income programs like the Canada Pension Plan. A few years ago the federal government took a look at the existing structure of the CPP and how well it fit with the current and future needs of retiring Canadians. The result of that review was a decision to make significant changes to the CPP, and the implementation of those changes will begin on January 1, 2019.

Although most Canadians will receive CPP retirement benefits, many are unfamiliar with how the CPP system operates. The CPP is a contributory plan, in which employees and employers each make contributions throughout the working life of the employee, starting at age 18. The amount of contributions made is calculated as 4.95% of income, but there is a maximum annual contribution amount. Effectively, the maximum allowable contribution for a year is currently reached at about $55,000 in income (known as Yearly Maximum Pensionable Earnings, or YMPE). Even where an individual’s income exceeds the YMPE, it’s not possible to make additional CPP contributions for the year. As currently structured, the CPP retirement benefit replaces about 25% of income, based on the current YMPE of $55,000. Finally, the CPP must, by law, be fully funded, meaning that any benefits paid out of the CPP must come from contributions made and income earned from the investment of those contributions.

The changes to be made to the CPP will be implemented over a five-year period, from 2019 to 2025. At the end of that implementation period, the maximum CPP benefit available to retired Canadians will have increased by about 50%. (Currently, the maximum monthly benefit is about $1,135, although the average CPP retirement benefit received is closer to $673.) As a result, by 2025, the CPP retirement benefit will replace about 33% of pre-retirement income, based on the YMPE. In addition, the YMPE will be increased. All of these increases must, of course, be funded, and that funding will come through an increase in the amount of CPP contributions required to be made by employees, employers and the self-employed. Those contribution amount increases will start in January 2019.

Each of the changes outlined above essentially maintain the current structure of the CPP and simply provide for higher contribution amounts resulting in greater CPP benefits. The second change, however, which starts in 2024, effectively provides for a separate, additional required contribution for Canadians who earn more than the YMPE. That separate contribution rate, which is expected to be 4% for both employees and employers, will be calculated as a percentage of income between the YMPE to the upper income limit for the year. That upper income limit will be implemented over a 2-year period and is expected to reach $82,700 in 2025. Individuals who are required to make the additional contribution will be entitled to claim that contribution as a deduction from income for tax purposes.

The first change which working Canadians will notice will be an increase in CPP contribution rates, as of January 1, 2019. That change will be minimal: while CPP contribution rates for 2019 have not yet been announced, the estimate provided when the CPP changes were announced indicated that such changes would mean an increase in contributions of about $6.00 a month in 2019. That increase will accelerate in subsequent years, such that the increase is about $43 per month by 2025.

All working Canadians between the ages of 18 and 65 must contribute to the CPP, and those Canadians, especially younger Canadians, will be most impacted by the upcoming changes. Canadians who remain in the work force past the age of 65 (even if they are already receiving CPP retirement benefits) have the option of continuing to contribute to the CPP up until the age of 70, and receiving increased CPP benefits as a result. After age 70 no one, even if they remain in the work force, can contribute to the CPP.

Canadians also have a choice of when to begin receiving CPP retirement benefits. Such benefits can begin at the age of 60 or can be deferred to as late as age 70. With each year that the receipt of benefits is deferred, the amount of monthly benefit increases.

The decision of when to begin receiving CPP retirement benefits and when to cease making CPP contributions is one which involves the assessment of many individual factors, including living costs in retirement, the availability of other sources of income in retirement, one’s health and employment circumstances and the cost of contributing to the CPP relative to the benefits to be received.

Starting next year, the planned changes to the CPP will be another factor to be included in that calculation.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Most Canadians deal with our tax system only once a year, when preparing the annual tax return. And, while that return – the T1 Individual Income Tax Return – may be only four pages long, the information on those four pages is supported by 13 supplementary federal schedules, dealing with everything from the calculation of the tax-free gain on the sale of a principal residence to the determination of required Canada Pension Plan contributions by self-employed taxpayers.

Most Canadians deal with our tax system only once a year, when preparing the annual tax return. And, while that return – the T1 Individual Income Tax Return – may be only four pages long, the information on those four pages is supported by 13 supplementary federal schedules, dealing with everything from the calculation of the tax-free gain on the sale of a principal residence to the determination of required Canada Pension Plan contributions by self-employed taxpayers.

All of this detail makes it easy for the majority of individuals to overlook valuable deduction and credit claims which may be available to them. And, while the Canada Revenue Agency (CRA) will correct minor arithmetical errors made on the return, it does not (and cannot) assess the taxpayer to include claims for deductions or credits which could have been made but were not.

One such often overlooked claim is the one which can be made for payments made during the taxation year for annual union, professional, or similar dues. It’s a particularly useful claim since the expenditure in question is one which the taxpayer is obliged to make in any event and, where the requisite criteria are satisfied, the amount of such payment is fully deductible from income, without limit. Put another way, the income which was earned and used to pay annual union or professional dues is, where the related deduction is claimed, income on which no tax is paid.

The deduction claimable for union and professional dues is particularly easy to overlook because of where it appears on the annual return. Although there are forms used by self-employed taxpayers to claim business-related costs, as well as forms used by employees to claim allowable employment expenses, the deduction for union or professional dues doesn’t appear on either of those forms. Rather, it shows up as a single line (Line 212) on page 3 of the T1 annual return.

The general rule for claiming such a deduction is described in the annual income tax return guide as follows:

Line 212 - Claim the total of the following amounts related to your employment that you paid (or that were paid for you and reported as income) in the year:

annual dues for membership in a trade union or an association of public servants;

professional board dues required under provincial or territorial law;

professional or malpractice liability insurance premiums or professional membership dues required to keep a professional status recognized by law; and

There are, of course, requirements which must be satisfied in or for such payments to qualify for a deduction. The most important such restriction is that amounts paid must be those which are necessary in order for the taxpayer to obtain or maintain his or her professional standing. Every profession and trade has licensing and similar requirements which mandate that an individual maintain membership in a professional or similar association in order to practice his or her profession or trade. The costs of maintaining required membership in those organizations is deductible. Most professions and trades also have one or more voluntary associations which individuals may join by choice. However, the cost of maintaining membership in those voluntary associations, even if related to one’s trade or profession, is not deductible. So, for example, if membership in a given association does not affect professional status (e.g., the Canadian Bar Association for lawyers), dues or fees paid to it are not deductible. If, on the other hand, membership is necessary to maintain professional status (e.g., the Law Society of the province in which the individual lives and practices law), required dues to it are deductible.

While all such associations levy fees as a requirement of continuing membership and the right to practice the profession, invoices received for annual membership fees can cover a number of different charges and levies, and not all of those costs will be deductible. CRA’s policy is that annual membership dues do not include initiation fees, licences, special assessments, or charges for anything other than the organization’s ordinary operating costs. An individual cannot, for instance, claim charges for pension plans as membership dues, even if receipts received show them as dues.

Where a claim for a deduction for professional membership or union dues is made, some other considerations arise. Generally, while it’s not necessary that having a particular professional designation be a requirement of the employee’s position in order for that employee to claim a deduction for related professional dues, the CRA does require that there be some connection between the employment and the professional association in question.

Take, for example, a chemical engineer who is employed by a company to sell chemical products or who is the president of a company that processes chemicals. There is sufficient connection between that person’s qualification as a chemical engineer and his or her employment duties that a deduction would be claimable for the cost of professional dues paid. On the other hand, a lawyer who is working full-time as the CEO of a furniture manufacturing and sales business does not satisfy the requirement and, accordingly, would not be entitled to deduct dues paid to maintain his or her professional status as a lawyer.

It’s not uncommon that an employer is willing to cover the cost of an employee’s professional dues as part of that employee’s benefit package. Where that’s the case, and the employer’s payment of those dues does not appear on the employee’s T4 as a taxable benefit, no deduction for those costs can be claimed by the employee. Where, however, there is a taxable benefit which accrues to the employee (and that benefit is documented on a T4A and must be reported as part of his or her employment income), the employee can claim an offsetting deduction for eligible dues or fees paid, on Line 212 of the return.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Anyone who has ever tried to reduce their overall personal or household debt knows that doing so, no matter how disciplined one’s approach, can seem like a one step forward, two steps back proposition. It sometimes seems that, just as measurable progress is achieved in one area (an extra payment is made on the mortgage), unexpected costs in another area (a significant car repair bill) push up the level of debt elsewhere (e.g., credit card debt).

Anyone who has ever tried to reduce their overall personal or household debt knows that doing so, no matter how disciplined one’s approach, can seem like a one step forward, two steps back proposition. It sometimes seems that, just as measurable progress is achieved in one area (an extra payment is made on the mortgage), unexpected costs in another area (a significant car repair bill) push up the level of debt elsewhere (e.g., credit card debt).

That experience is being replicated on a macro level, in the figures for household debt relative to disposable income ratios of Canadian households, as reported by Statistics Canada. Earlier this year, media reports on those statistics were able to include such phrases as “household debt ratio sees biggest drop on record” and “Canada’s household debt burden falls to two-year low”. Those phrases did accurately reflect the statistical information released by Statistics Canada in June of this year. More recently, however, the September StatsCan release led to headlines like “Canadian household debt climbs in second quarter” and “Canada’s household debt back to $1.69 for every dollar of disposable income”.

While it seems that the progress made in reducing household debt in the first quarter of 2018 (as reported in June 2018) has been undone by the latest statistics, there is a small amount of positive news — while the ratio of $1.69 of household debt per dollar of disposable income is clearly very high, it has been higher. In the third quarter of 2017, that ratio hit $1.73.

While the statistics identify the overall quantum of household debt, the composition of that debt and the demographic characteristics of who carries that debt are probably more important, from the point of view of both individuals and the overall economy.

First, the vast majority of debt held by Canadians and Canadian households is mortgage debt – money borrowed to purchase a home. Specifically, of the $2 trillion owed by Canadians, almost 75% is in the form of mortgage debt. Consequently, no matter how much the debt, that debt is secured by an underlying asset – the property – which can, in the worst-case scenario, be sold to satisfy or retire the mortgage debt.

However, absent that worst-case scenario, the day-to-day concern is the ability to keep up with mortgage payments. As pointed out by the Governor of the Bank of Canada in a presentation made earlier this year, “what matters most is the burden of servicing debt relative to income”. Or, in other words, the percentage of household income which is needed to make the required payments of interest and principal. In that respect, the debt service ratio of Canadians has stayed within the 5 to 7% range for about the last quarter century. Canadians have, in effect, been able to carry higher levels of debt relative to income without increasing their debt service costs, because of the lower interest rates which were in place for most of the past decade.

While that is clearly good news, it is very possible that the average debt service ratio will climb in the near future, as the result of several factors. First, most of the debt held by Canadians is in the form of mortgage debt, which is long-term debt. In most cases, a mortgage is the biggest debt Canadian families ever take on, and most mortgages are paid off over at least a 25-year time span. Consequently, the management of mortgage debt in all interest rate environments is a long-term task – absent the sale of the underlying property, paying off mortgage in the short term isn’t a likely scenario. Second, the Bank of Canada has now increased interest rates five times since July 2017 (two of those increases happening in the past four months). The Bank Rate is now more than double what is was in May 2017, and each increase in that rate has been reflected in higher borrowing costs, including higher mortgage interest rates. It’s likely, however, that most mortgage holders have not yet felt the impact of those increased rates. Most mortgages are fixed-term mortgages (meaning that the rate of interest stays the same throughout the mortgage term, regardless of any increase or decrease in interest rates which take place during that time period). And the majority of the fixed-term mortgages taken out have a five-year term. Consequently, homeowners who took out a five-year fixed term mortgage prior to July 2017 have not felt the effects of the five recent interest rate hikes. However, when their current mortgage comes up for renewal, the rate of interest which they will be paying will certainly be higher than their current rate and, consequently, the cost of servicing that debt will take a bigger chunk of their household income. The concern is that that such increases in those debt servicing costs may be not be manageable and, in the worst-case scenario, could lead to an increase in mortgage default rates.

Finally, it is important to note that all these figures represent an average of all Canadian households, and to remember that that average is made up of both households that have zero debt and those that are seriously over-leveraged. According to Bank of Canada figures, about 8% of indebted households owe 350% or more of their gross income, representing a bit more than 20% of total household debt. In other words, the degree of financial risk facing Canadian households is very much an individual calculation. Figures announcing the average rate of household debt to income ratios or debt servicing ratios, or the announcement of another increase in interest rates by the Bank of Canada shouldn’t be cause for either individual relief or despair. Rather, they should prompt a review of one’s own person debt and financial circumstances to determine whether those circumstances, and particularly the extent to which they will be impacted by future interest rate increases, is cause for concern. If so, it’s time to take steps to mitigate that future risk, before a debt problem becomes a debt crisis.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

For most Canadians, having to pay for legal services is an infrequent occurrence, and most Canadians would like to keep it that way. In many instances, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences — a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.

For most Canadians, having to pay for legal services is an infrequent occurrence, and most Canadians would like to keep it that way. In many instances, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences — a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.

Unfortunately, while there are some circumstances in which such a deduction can be claimed, those circumstances don’t usually include the routine reasons — purchasing a home, getting a divorce, establishing custody rights, or seeking legal advice about the disposition of a family estate — for which most Canadians incur legal fees. Generally, personal (as distinct from business-related) legal fees become deductible for most Canadian taxpayers only where they are seeking to recover amounts which they believe are owed to them, particularly where those amounts involved employment or employment-related income or, in some cases, family support obligations.

The first situation in which legal fees paid may be deductible is that of an employee seeking to collect (or to establish a right to collect) salary or wages. In all Canadian provinces and territories, employment standards laws provide that an employee who is about to lose his or her job (for reasons not involving fault on the part of the employee) is entitled to receive a specified amount of notice, or salary or wages equivalent to such notice. In many cases, however, the employee can establish a right to a period of notice (or payment in lieu) greater than the statutory minimum. The amount of notice or payment in lieu of notice which is payable can then become a matter of negotiation between the employer and its former employee, and such negotiations usually involve legal representation and, consequently, legal fees. In that situation, legal fees incurred by the employee to establish a right to amounts allegedly owed by the employer are deductible by that former employee. If a court action is necessary and the Court requires the employer to reimburse its former employee for some or all of the legal fees incurred, the amount of that reimbursement must be subtracted from any deduction claimed. In other words, the former employee can claim a deduction only for legal fees which he or she was personally required to pay and for which he or she was not reimbursed.

In some situations, an employee or former employee seeks legal help in order to collect or to establish a right to collect a retiring allowance or pension benefits. In such situations, the legal fees incurred can be deducted, up to the total amount of the retiring allowance or pension income actually received for that year. Where part of the retiring allowance or pension benefits received in a particular year is contributed to an RRSP or registered pension plan, the amount contributed must be subtracted from the total amount received when calculating the maximum allowable deduction for legal fees. However, where all legal fees incurred can’t be claimed in the current year, they can be carried forward and claimed on the return for any of the 7 subsequent tax years.

The rules covering the deduction of legal fees incurred where an employee claims amounts from an employer or former employer are relatively straightforward. The same, unfortunately, cannot be said for the rules governing the deductibility of legal fees paid in connection with family support obligations. Those rules have evolved over the past number of years in a somewhat piecemeal fashion. The current rules are as follows.

Legal fees incurred by either party in the course of negotiating a separation agreement or obtaining a divorce are not deductible. Such fees paid to establish child custody or visitation rights are similarly not deductible by either parent.

Where, however, one former spouse has the right to receive support payments from the other, there are circumstances in which legal fees paid in connection with that right are deductible. Specifically, legal fees paid for the following purposes will be deductible by the person receiving those support payments:

collecting late support payments;

establishing the amount of support payments from a current or former spouse or common-law partner;

establishing the amount of support payments from the legal parent of that person’s child (who is not a current or former spouse or common-law partner). However, in these circumstances the deduction is allowed only where the support is payable under a court order, not simply under the terms of an agreement between the parties;

seeking an increase in support payments; or

seeking an order making child support amounts received non-taxable.

On the payment side of the support payment/receipt equation, the situation is not so favourable, as a deduction for legal fees incurred will not generally not be allowed to a person paying support. More specifically, as outlined on the Canada Revenue Agency (CRA) website, a person paying support cannot claim legal fees incurred in order to “establish, negotiate or contest the amount of support payments”.

Finally, where the CRA reviews or challenges income amounts, deductions, or credits reported or claimed by a taxpayer for a tax year, any fees (which in this case includes accounting fees) paid for advice or assistance in dealing with the CRA’s review, assessment or reassessment, or in objecting to that assessment or reassessment, can be deducted by the taxpayer. A deduction can similarly be claimed where the taxpayer incurs such fees in relation to a dispute involving employment insurance, the Canada Pension Plan or the Quebec Pension Plan.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.